Service Level Chicanery

For online tutoring, students want on-demand help. Frankly, why else would they choose to be tutored online? As the online tutoring industry evolves into a larger market, it is interesting to note the lengths to which companies will go to to promise on-demand assistance. For instance, Tutor.com claims on-demand tutoring on its web site and in various corporate blogs. However, their service is only available from 11 AM - 10 PM (PT). Perhaps a more accurate claim would be "on-demand tutoring except for 13 hours per day." Worse, TutorVista (and many other small tutoring companies) claim 24/7 tutoring. In practice, this means that a student can schedule a tutor at any time for any time with sufficient notice. It does not mean that a student can get help exactly when they want it. At SMARTHINKING, we offer true on-demand math tutoring for the fall and spring semesters. During the summer, drop-in tutoring is available for 16 hours per day because there is not a sufficient volume of students to support full 24/7 access.

Why would companies spin these little white marketing lies? Because true on-demand tutoring -- 24/7, drop-in, live service -- is more expensive, requires greater scale, requires greater expertise, and requires greater data than pre-scheduled tutoring. These companies are trying to attract customers without investing in the tutoring force and management expertise necessary to offer on-demand service.

To understand why on-demand tutoring is more expensive and more complex, it helps to think of on-demand tutoring like a customer service center. When you call a company or utility, you expect to talk to someone on the other end. Running such a center is very similar to running an on-demand tutoring service. A critical operational variable in a call-center is "utilization capacity." This is the percentage of time that tutors spend tutoring students. It utilization capacity is too high then students have to wait a long time for tutors. If utilization capacity is too low, then the company is losing money. For instance, if a tutor is being paid $12 per hour and utilization capacity is 50%, the cost per hour tutored is $24. But, because one or more tutors are almost always available, there are no wait times. So, utilization capacity and wait times are inter-related variables. To do it right, a company needs to set a service level target and then determine the target utilization capacity to meet that target.

So, utilization capacity and service levels are mutually dependent variables. However, achieving a target service level also depends on the average length of a tutoring session. For instance, if a typical session in a call center is 2 minutes long, then a customer service center doesn't need to staff as many people to achieve a low wait time because customer service representatives are frequently available. However, for online tutoring, the average session length is around 30 minutes. This means that, with a small number of students per hour, an online tutoring company must have a very low utilization capacity to meet minimum desired service levels. As the number of students per hour rises, utilization capacity can rise while keeping service levels constant. Because utilization capacity can rise, it costs less to offer on-demand tutoring with a large number of students than with a small number of students.

Lastly, to manage all of this efficiently, an online tutoring company needs management sufficiently skilled to schedule tutors appropriately and sufficient data to know when the peaks and valleys of demand are likely to be.

So, to sum up, true on-demand tutoring generates higher labor costs because a portion of a tutor's time will not be used, requires scale to keep the unused portion of time as small as possible, requires management expertise, and good data systems. This is a significant investment that all small online tutoring companies are unwilling to make. The expense of true on-demand tutoring combined with its attraction to customers is the impetus behind the false advertising cropping up in the online tutoring industry.

The Direct To Consumer Conundrum

I'm digging this blog idea. Prior to starting SMARTHINKING, I was a freelance writer for education and technology issues. I wrote for a variety of magazines and institutions -- Converge magazine (now defunct), Wired (a couple of very small pieces), CEO Forum on Education and Technology, National School Board Association, and others. This feels like those days again...

In the last six months, there has been resurgent interest in selling online tutoring services directly to consumers. One company plans to offer low-cost tutoring from tutors located in India and has raised over $10 million to try it. Another company is trying to raise a similar amount to aggressively expand into the direct-to-consumer market. This investor fervor hearkens back to the days of the late '90's when investors and companies showed similar irrational exuberance over the online tutoring market (from which my company benefited, to a degree).

The last decade is littered with companies that have tried to sell online tutoring services directly to consumers. In the late '90's one company raised close to $20 million on the theory that it could create a market for tutors offering their services and students needing tutors. Another well-known company invested close to $40 million to develop a direct-to-consumer online tutoring service. While both of these companies are still around, their business models have radically changed. After plowing through its $20 million, the first company bought a much smaller company that allowed them to sell services directly to public libraries -- effectively abandoning the direct-to-consumer model. It is now trying to resurrect the direct-to-consumer channel. The second company integrated its online tutoring offerings into it's place-based tutoring services -- effectively creating a hybrid tutoring option. Neither company has come close to justifying the original investment. From my own experience, SMARTHINKING ran several well-executed pilot programs targeting the direct-to-consumer market with very little success.

Tutoring seems like a market ripe for "disintermediation." According to Eduventures, the tutoring market is worth $4.5 billion and growing at 15% per year. It's also highly fragmented with price points ranging from $8 - $200 per hour, varying levels of quality, and imperfect mechanisms for quality assurance. In short, it seems like a perfect market for the aggregating ability of the Internet. In theory, some company should be able to offer a consistent level of service at a relatively low price to create a respected online tutoring brand that would aggregate both tutors and students. In practice, this has not been the case.

So, what happened? One answer might be that students don't really like online tutoring. Perhaps face-t0-face tutoring provides a level of personal interaction that is lacking on the Internet. While this is undoubtedly true, online tutoring offers other advantages like convenience of time and place, anonymity, archiving, and others. Further, usage of SMARTHINKING's online tutoring services is growing by more than 50% per year with most students using the service more than one time. Student surveys show that students really like the service. So, again from our experience, this isn't the case.

I believe that that the direct-to-consumer market hasn't worked because there is a mismatch between the market to whom online tutoring appeals and the consumer purchasing patterns for educational services. There are 2 types of tutoring. They are "prescriptive" and "drop-in." Prescriptive tutoring is where a student attends regularly scheduled tutoring sessions, frequently with the same tutor. Often, this tutoring will be tied to a pre-tutoring assessment to identify student weaknesses. The largest market for Prescriptive tutoring seems to be in the K-7 grades. Drop-in tutoring is where students get help from tutors when they need help. Essentially, this is a call center model for tutoring. Almost the entire consumer market for tutoring resides in the Prescriptive market. All of the well-know tutoring companies offer Prescriptive tutoring services. Prior to the advent of the Internet, Drop-in tutoring was restricted to places where students could be aggregated to create sufficient volume to offer a drop-in service. In practice, this was limited to learning assistance centers (ie. math labs) at colleges and universities. The Internet has allowed Drop-in tutoring to expand beyond the residential school. Because Drop-in tutoring requires students to initiate the interaction, this is most appropriate for high school and college students.

This is a rough and incomplete generalization, but I believe that education has 2 functions. These are socialization and knowledge transfer. When students are young, socialization is more important. As students age, knowledge transfer gains in importance. No matter how well constructed, online tutoring is simply a less powerful socialization experience than face-to-face tutoring. Therefore, online tutoring has not been as popular or successful with younger students. On the other hand, the convenience of the drop-in model of online tutoring is excellent at knowledge transfer. This model is used successfully by older students -- typically high school and college students. So, to sum up, online tutoring works well for older students, but not as well for younger students.

This is another rough and incomplete generalization, but consumer purchasing of educational products and services is restricted to three general categories. These are:

1. Educational objects and toys -- like reading software or Leapfrog's toys;
2. High stakes test prep -- SAT prep, etc...
3. "Get Ahead" services -- Tutoring for young students.

Numbers 1 and 3 appeal to parents of younger students. Number 2 appeals to parents and students in the high school and college levels. Parents of high school students are willing to pay for test prep because there is a very clear goal in mind. They have not been willing to purchase Drop-in tutoring because the value isn't as clear. College students will spend a ton of money on tuition and textbooks, but don't buy much of anything after that. Again, because the relationship between an external tutoring service and passing a class isn't extremely obvious. What this means is that, the element of online tutoring that works well -- Drop-in tutoring-- is not well matched to the buying power and habits of the students for whom it works well.

It is entirely possible that I have misjudged the market dynamics. Perhaps the consumer market for online tutoring in the late '90's and early '00's wasn't mature enough yet. Perhaps the new marketing power of search engines is enough to create this consumer market. Perhaps today's investment in the consumer online tutoring market will prove to be rational exuberance. However, I don't think student and parent buying patterns have changed very much. Here are the lessons that I draw:

1. Drop-in online tutoring works well.
2. Drop-in online tutoring is best sold as an "add-on" to a school or as part of a bundled solution with another educational product.
3. Students will come to expect Drop-in online tutoring as part of their educational experience, rather than purchase it independently.

The next year will tell if there really is a consumer market for online tutoring.